Journal

This blog post was born out of an email thread with one of our portfolio founders earlier this year, covering some of the key challenges the company had in growing their team and the associated operational overheads that come with scaling.

Some of this post’s content is from various reading material, but the majority is direct (mostly painful) experience from startups who made it, and startups who didn’t. What they have in common is what I’m sharing here. It’s far, far from exhaustive and is mainly focused on team dynamics as opposed to specific business challenges. There are many good guides to the latter on the web and in various books, but few about the former. Hopefully some of these points will help, or at least raise a wry smile of recognition, amongst those involved in such a dynamic environment.

Delegation – going straight to the top

One of the biggest challenges when growing a team isn’t drawing up a smart new org chart, it’s putting in place the right protocols between the team and the founders. The headcount grows and the complexities and decision-making trees expand, but the original founder(s) remain the ‘go-to’ people for the rest of the organisation when they have a question or an idea. This is rational, as staff know they are generally still the most knowledgeable – and have the authority to green-light that new widget that will change everything. However, people don’t follow org charts, they follow knowledge and decision-making power.

Delegation is hard, and it can be hard for founders to relinquish opportunities to brainstorm or resolve conflicts, but it hurts the company in the end, as what was once the wellspring becomes the bottleneck.

All of the above can be amplified if the founder is either too resistant to delegate, as described above, or is too eager to do so. Striking the balance is the main challenge here.

Cliques – “This isn’t the company I joined…”

With scale comes a need to more tightly define business functions and roles. My rule of thumb is that as soon as a company gets to around 10-12 people, it’s no longer possible to involve everyone on everything. New positions might be dedicated product management, sales, marketing, account management and so on. As these roles come on board, each adds another layer of complexity and sometimes confusion amongst less experienced staff, many of whom have been with you from the start, but who never had to work alongside these roles. This can lead to insecurity (“Why am I no longer allowed to sit in on every meeting?”, “Why do I have to talk to X about Y when we used to just make it happen?”) and from there many things can start to spiral. Addressing this means clear communication, demarcation of responsibility and job specifications.

Process and division of labour – roadblocks and roundabouts

Where work has previously been done by individuals (i.e. at the start the founder is CEO, head of sales, head of product and so on) the introduction of dedicated roles means this work is now done by cross-functional teams. Getting them to work together effectively is probably the most difficult in all scaling challenges.

Teams should produce more in less time, right? Well often the reverse is true. Where once someone might have the germ of an idea, sketched out a wireframe mockup and gone to the CTO who then built it, the reality now is there are 4 or 5 people in different teams trying to hand off at each stage. Good operational process can overcome this, but not immediately, no matter how good the individuals are. And initially pretty much everyone will hate you for adding rules and processes. Guaranteed.

Documentation – surfacing knowledge

Boring as hell to a startup culture, but key to imparting knowledge from the more experienced employees to the new ones. This is everything from product overviews to customer target profiling and everything in between. It’s the only way to get knowledge out of the inevitable cliques that form within teams and into the rest of the organisation.

The right people – hiring (and firing)

My favourite topic and a constant challenge for all small companies. Two things to say here:

Finding the right people takes time, and that can lead to taking the ‘good enough’ option to candidates. This is a big mistake and will come back and bite the company down the road. A bad hire will be your first fire, and first time entrepreneurs never forget how painful that is. It’s also toxic to the team overall.

Hiring senior people shouldn’t always mean bringing in someone from a big corporate. It’s attractive to think you could entice someone who has run a global sales team, or was next in line to the CEO gig at a Fortune 500 company. The danger here is that they can tend to think their job is to remake your startup in the image of their former employers. This often leads to culture clashes and frustration on their part that everything can’t be done straight away.

All of the above occurs in some shape or form. That said, not everything can be addressed at the same time. The founder’s job, and one of his / her real skills, is knowing what to choose to focus on at any given time, otherwise nothing gets implemented properly. That, however, is a whole other topic.

Ever since the end of the 18th century the question of what constitutes an individual has been asked persistently. The 21st century is no different, except for the methods by which we express our individuality. The fact that I live in a society means that everything I do affects, and is affected by, what others do. Indeed, I am a social being in more than just my interaction with other individuals. I am, to an extent, what others think and feel me to be. If I ask myself the question “Who am I” my answers (Scottish, an Internet entrepreneur, middle class (now), a cyclist etc) betray the fact that to possess these attributes entails being recognised as belonging to a certain group or class by other people in my society, and that this recognition is part of the meaning of most of the terms that denote some of my most personal and permanent characteristics.

It is not just that my material life (e.g. earning a living) depends upon interaction with other people, or that I am what I am as a result of social forces, but that some (perhaps all?) of my ideas about myself, in particular my sense of my own moral and social identity, are intelligible only in terms of the social network in which I am an element.

Now take that social network and make it global, make it virtual and make it 24/7…

The lack of freedom amounts, as often as not, to a lack of proper recognition. Ask the hoodies in the inner cities of the UK what makes them act as they do and many of the answers are directly, or indirectly, related to boredom as a byproduct of not being given anything or anywhere to express themselves. What most of us seek in terms of ‘Freedom’ is not security from being arrested, tyrannical governments, deprivation or the right to do anything I want to do, regardless of it’s impact on others. Rather, we seek simply to avoid being ignored, patronised or being taken for granted. We want freedom to be recognised as an individual, a distinct being rather than a formless part of an amalgam.

And what is true of the individual is true of groups too, from religious sects to entire nation states… to the creators of group pages on Facebook. The desire to be recognised as an individual (or group of like-minded fans of The Hills) with a will of its own

My friend and ex-colleague at Joost, Steve Allen, just tweeted about a great article in the NY Mag about Twitter (http://tr.im/flai). Long and short of it is that Twitter isn’t making money. Yet.

Now, we’re living through the biggest economic downturn in, well, ever. This has led me to begin to wonder: why, when something good comes along on the web (and Twitter is good) does it immediately become necessary for it to be worth 100′s of millions and show hyper-growth in revenues? I don’t know Twitter’s founders, or what drives them personally, but I hope they don’t get pressured into a corner to start bolting on revenue-generating features that detract from the user-experience.

I’m no hippy, I’ve run my own business and appreciate cashflow and margins more than most. What concerns me is the rush to take something promising and make it a goliath. Along this path what tends to happen is the original team become disenfranchised, the culture within the company changes and people leave. This happens normally in the lifecycle of any startup, but is accelerated in a hyper-growth strategy. Users of such a powerful social tool as Twitter are perhaps the most sensitively attuned to changes – if the product begins to morph away from its key USP, enabling a culture of sharing information, people will leave and look elsewhere.

Will Leitch states in the article, relating the story of how Janis Krums started the tweet coverage of the Hudson plane crash:

In the midst of chaos—a plane just crashed right in front of him!—Krums’s first instinct was to take a picture and load it to the web. There was nothing capitalistic or altruistic about it. Something amazing happened, and without thinking, he sent it out to the world. And let’s say he hadn’t. Let’s say he took this incredible photo—a photo any journalist would send to the Pulitzer board—and decided to sell it, said he was hanging onto it for the highest bidder. He would have been vilified by bloggers and Twitterers alike. His is a culture of sharing information. This is the culture Twitter is counting on. Whatever your thoughts on its ability to exist outside the collapsing economy or its inability (so far) to put a price tag on its services, that’s a real thing. That’s the instinct Stone was talking about. If the nation has tens of millions of people like Krums, that’s a phenomenon. That’s what Twitter is waiting for.

It is a ‘real thing’, just not one that can necessarily make the company as valuable as Facebook or Microsoft. Worryingly, the article mentions that a recent TechCrunch report claimed the founders signed a term sheet with another fund that values the company at $250 million. That’s a lot of virtual value to live up to.

There are many, many good mid-sized companies out there, tunring over reasonable profits and giving out worthwhile dividends to shareholders. If Twitter can do that who’s to say it’s a failure (other than the VCs who’ve already put in $20 million)?

In my current “between jobs” situation I’ve been catching up on a *lot* of reading – all those things I put into my ‘to read’ folder on the desktop. I’ve also started on the pile of books bought over the last year or so that have been left to their own devices, unread. One of these books is “The Paradox of Choice – Why more is less” by Barry Schwartz. I came across Barry on the TED site where he gave a lecture on the surfeit of choice in today’s society and the negative psychological impact this has on individuals. He focuses on physical and service-based goods (supermarkets, clothes, healthcare etc) but I’m sure this translates to certain online environments as well, especially longer-form video.

The message chimed perfectly with something I have tried to champion in my professional career – less can be more. Aggregators of video content, where my experience lies, are continually exploring ways to giveviewers a simple way to find content: search, automated recommendations, friend recommendations, ratings, programming and promotion and so on.

The primary thesis here is as follows: the more content you have to offer, the more paralysed a user can become in trying to find something relevant to them. In the online video universe this manifests itself in a similar way: by searching for and choosing a video to watch from tens of thousands on offer, I’m probably missing something ‘better’ somewhere else on the site. Maybe I should search a bit more before choosing? This calamity of choice can have such a negative impact that the user simply switches off – they may not be able to express why exactly, but the experience is not enjoyable, so why bother. It could be argued that Youtube defies this argument. I agree. But only because the ‘cost’ of choosing something is so low – the average video length viewed is 2 1/2 minutes. If it sucks it’s not that much time wasted.

Higher cost goods (think longer form video) tend to involve more investment in time and thought – you don’t ‘pop out’ to buy a car or a TV. Research, recommendations from friends and other sources are probed first. The same goes for longer form video – if I’m looking for something to entertain me for 30+ minutes then I’m more likely to do some evaluation first (current primetime programmes or movies excluded). This is no different to flicking up and down the channels on TV, but the choices on offer are magnitudes deeper.

Back around 2000 Telewest, a cable platform here in the UK, had a problem with usage on their VoD platform. They had 1,000′s of film titles, but viewers were failing to use the service regularly. Two approaches to the problem were suggested – better search and some UI tweaking, or a reduction in the number of movies offered on the platform at any one time, with content refreshes on a frequent basis. The latter option was chosen and usage rocketed. The viewer felt more in control. They were no longer presented with the equivalent of the bargain bin at the back of record stores, where there are 1000′s of CDs thrown into a box for them to rummage through. Rather, the VoD platform became a simple, well laid out storefront, where the casual shopper could see all the wares and each product clearly marked in terms of it’s potential to entertain.

I haven’t finished Schwartz’s book yet , so may update this a little when I do. I’m reading more than one thing right now – too many choices you see

In the past, the ability to tightly control distribution of content allowed for near total control over material, conferring on broadcasters enormous power to feed entertainment as and when they saw fit to an eager public.

Those days are gone – absolute control of the distribution process has been lost, and the traditional media companies know it. How they respond will dictate their long-term success, if not survival. To exploit the opportunities and to gain new revenues, these companies must develop strategies that embrace digital distribution and leverage it to generate profits.

When a new delivery platform (Youtube, Joost, babelgum, Veoh, Brightcove etc etc etc) emerges one thing is clear: everything on either side of the value chain changes as well. By value chain, I refer to the two-way, interactive value chain that IP-delivered content requires:

Content creation/encoding

Application Authoring

Content Management

Service Management

Service Delivery

Synchronisation

Traffic and Scheduling

Automation

Return Path Management and Billing

New networks and network capabilities also give birth to new devices, which in turn help to define and create new formats. The ‘clip’ has become a byword for online video – but this is just the start. At the moment this tends to fall into two categories: the singalong-with-your-favourite song clip and the my-favourite-bit from-a-show-that-I’ve-illegally-edited-and-posted type. This will evolve over time, both from the user generated side and the professional content industry. Examples are already out there – soap operas on your mobile phone and ads created by the public for their favourite brands.

The creation and, as importantly, management of these new formats is not straightforward. Many broadcasters are struggling to remove organizational barriers towards a “single-customer” and “single-infrastructure” view, with content creation and distribution disconnected across departments and channels. Multiple systems from multiple vendors have created complexity at a process level – e.g. data needs to be input more than once. Emerging channels are still locked into separate business units and total spend on content management and distribution is clouded as a result. Platform complexity has forced content owners to develop interactive services as expensive “one-offs” or to adopt complex end-to-end solutions, locking them in to proprietary systems

To bring the digital revolution into the homes of the mass market will require a fundamental understanding of how content can be created, distributed and shared amongst end users. In order to do this, companies will have to fundamentally understand how complex systems work together in a flexible, affordable way to deliver great end-to-end experiences.